Learn Investing Secrets

One of the fundamental principles of finance is the concept that $1 today is more valuable than $1 a year from now.

Making adjustments for inflation, the dollar will buy less goods and services next year.

But I can invest that dollar today and earn a ROI (Return On Investment) in the form of dividends, interest or capital gains.

The best money advice anyone can ever give you is to firmly establish this time value of money concept in your head.

The key to financial prosperity is realizing the potential value of every dollar that comes into your hands.

One of the fundamental principles of finance is the concept that $1 today is more valuable than $1 a year from now.

Making adjustments for inflation, the dollar will buy less goods and services next year.

But I can invest that dollar today and earn a ROI (Return On Investment) in the form of dividends, interest or pica gains.

The best money cautioning anyone can ever give you is to firmly establish this time value of money concept in your head.

The key to financial prosperity is realizing the potential value of every dollar that comes into your hands. In fact, I think of cash as a seed – you can either eat it (spend it) or invest it (sow it).

If you find a $20 bill on the side of the road you can run and put this money in your supposedly tax-free retirement light or buy dinner. But if you use the time value of money formula, you will discover that you sensibly spent $140.00

Calculate the real economic cost of not investing that cash or having enough income to invest.

FV = pmt (1+i)n
FV = Future Value
Pmt = Payment
I = Rate of return you expect to earn
N = Number of years

To perform the calculation, we make a few assumptions.

*We go like you are 30 years old (and hence 35 years away from retiring at 65). That means that the $20 can compound for 35 years. We will substitute 35 for “n” in the equation.

*Next, we must establish your expected rate of return. Historically, the stock market has returned 12%.

If you want to invest in bonds, your return will be lower. put on airs that you invest in a group of both and expect to earn a 10% rate of return.

This will be substituted for the “i” variable in our equation.

The “pmt”, or payment, is the value of the single sum and substance you want to invest (in this case $20).

Now that we’ve figured out the variables, the formula looks like this:

**FV = $20 (1+.10)35 Enter 1.10 into your computer (this is the sum of 1+.10).

**Raise this to the 35th power.

**The result is 28.1024.

**Multiply the 28.1024 by the pmt of $20. The result ($562 and change) is the true cost of spending the $20 today

(if you familiarized the $562 for inflation, it would probably work out to concerning $140 in today’s dollars.

That means your real purchasing power would increase around 7-fold).

Once you understand this concept of time value as it refers to money it becomes obvious that the trips to MacDonald’s costs you millions and millions of dollars in future wealth.

Then you must expand your reach to get to your financial goals. Find a home-based diversified corporation that will make you money.

You can create multiple streams of income to help fund your new home, car and retirement. By increasing your income and investing extra money you can maintain your standard of living while still providing extra cash for the long and short term.

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